The government has clarified that premiums for individual life and health insurance policies will be exempt from the Goods and Services Tax (GST). This change eliminates the 18% GST previously levied on these premiums, making essential insurance coverage more affordable for individuals and families.
The exemption specifically applies to policies taken out by an individual for themselves or their family members. However, the clarification states that this benefit does not extend to group insurance policies. These are typically offered by employers to their employees. Premiums for such corporate or group plans will continue to be subject to GST as before.
The government has also exempted reinsurance services, the insurance that insurers buy to protect themselves from GST.
However, insurers will face a significant adjustment regarding Input Tax Credit (ITC). For other essential input services such as agent commissions, brokerage, and administrative services, insurers will no longer be able to claim ITC.
Additionally, insurers are now mandated to reverse any previously claimed ITC on these inputs, in accordance with Section 17(2) of the Central GST (CGST) Act. This means that while their primary service (premiums) is now tax-exempt, the taxes they pay on their operational expenses can no longer be offset.
GST Cuts At 56th GST Council Meeting
Announcing the outcome of the 56th GST Council meeting, Finance Minister Nirmala Sitharaman had said that all individual life insurance policies, whether term life, ULIP or endowment policies, and subsequent reinsurance, are exempt from GST.
"All individual health insurance policies, including family floater policies and policies for senior citizens and reinsurance thereof, will also be exempt from GST," she said.
Since its inception in July 2017, a GST rate of 18% has been levied on premiums paid for health insurance and life insurance.
Also Read: 'Home Insurance Should Be Made Compulsory'
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